Board composition
The EBA has reinforced the principle that the Chair of the management body is to be a non-executive director, while the CEO of an institution is now expressly prohibited from carrying out the role of Chair.
Moreover, institutions are expected to implement conflict of interest mitigation measures in situations where a former CEO transitions into a non-executive role, including Chair of the supervisory function, without a cooling-off period of at least three years. This should include:
allowing other board members to request abstention from voting on sensitive items;
prohibiting participation in discussions or votes related to evaluations of their own past performance or decisions on remuneration for their previous executive role; and
requiring the former CEO to recuse themselves from discussions involving matters where a significant professional conflict of interest has been identified.
Similar measures when any former executive transitions into a supervisory role without adequate cooling-off period is also encouraged. Additionally, the Chair of the supervisory function of a parent entity’s management body should not be held by the CEO of a subsidiary is clarified, thus reinforcing the separation of governance layers.
In addition, the guidelines require institutions to give further consideration when combining the roles of risk management and compliance under a single senior individual. This may be permitted where justified by the institution’s nature, scale and complexity, but the institution must demonstrate that appointing separate individuals is not warranted. The individual must meet suitability, expertise and time commitment criteria for both functions, and the decision to combine these roles must be formally documented.
Gender balanced composition
The guidelines incorporate findings from the EBA’s benchmarking report on diversity practices, emphasising the need for institutions to adopt gender-neutral remuneration frameworks. This means that pay structures, incentives and performance assessments must be designed and implemented in a way that avoids gender bias and promoted fairness across all roles and levels of seniority.
Specific KPIs have also been proposed by the EBA in order to monitor the representation and equal treatment of staff of different genders. Such KPIs include the representation of genders across various management roles (such as management body, board committees), days of training received by gender, and staff turnover by gender. While not representing a binding or exhaustive list of KPIs, banks are expected to refer to such KPIs when determining their approach to managing staff.
Governance mapping
A structured obligation for institutions to maintain a comprehensive and accurate mapping of duties within a single document or repository has been introduced. Institutions must maintain a single, centralised document that clearly outlines reporting lines, responsibilities, and roles across both management and supervisory functions. This mapping must be:
Prepared at both entity and consolidated group levels.
Updated regularly and approved by the management body.
Aligned with individual role statements and governance structures.
To ensure alignment with regulatory expectations, the mapping must correspond with individual role statements, that must be prepared for all members of the Management Board, Senior Management and key function holders. The purpose of this exercise is to highlight any governance gaps and reflect the institution’s structure and operational complexity. At a minimum, the mapping is expected to include detailed descriptions of business areas, internal control functions, decision-making processes, committee interactions, shared roles and outsourced responsibilities. The mapping of functions is expected to be conducted by the institution at both entity and group-wide level. Institutions must ensure that the duty mapping is readily available to all relevant stakeholders and can be provided to supervisory authorities upon request.
Incorporation of additional EBA guidance
The updated guidelines also integrate references to other new guidelines and requirements spanning additional topics such as ESG, third-party risk management and third-country branches. A short summary of the key points to be considered for each topic is provided below:
Implications and implementation challenges
Taken together, these governance reforms will require institutions to develop a coordinated implementation strategy that spans legal, compliance, HR, IT and risk functions. The changes are not isolated as they intersect with broader regulatory developments such as CRR III, DORA, and ESG risk management guidelines. Banks are encouraged to give due consideration to their internal governance structures, reporting lines and relevant policies, in order to identify any gaps which need to be addressed.
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